Banco Bilbao Vizcaya Argentaria SA (BBVA) 2017 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the Second Quarter 2017 Results Presentation of BBVA.

I'm Gloria Couceiro, Global Head of Investor Relations.

And here with me today is Carlos Torres, Chief Executive Officer of the group; and Jaime Saenz de Tejada, BBVA group CFO.

We are trying to publish the information at the CNMV, but there are some technical difficulties, probably because today it's a busy day of communications.

Okay.

So as -- that we are going to start with the call.

As usual Carlos will begin with the presentation of group's results and then Jaime will review the business areas.

We will move straight to the live Q&A session after that.

(Operator Instructions)

And now I'll hand over the call to Carlos.

Thank you, Gloria and good afternoon or evening to all of you and welcome to BBVA Second Quarter 2017 Audio Webcast.

The second quarter has been another strong quarter.

We continue with the good start of the year that we had in the first one.

We had a net attributable profit of EUR 1.1 billion, with very high quality of the results, with low NTIs and no significant extraordinary gains.

Our capital remains strong, with the fully loaded capital equity -- core equity Tier 1 ratio of 11.1%.

The highlights of the quarter.

We had strong core revenue growth, NII and fees growing in constant euros at 9.3% versus the same quarter of last year.

Cost control; the efforts really are resulting in positive operating jaws with the cost growing in constant euros at 2.2% year-to-date.

Efficiency continues to be a key strategic priority.

We maintain stable risk profile.

Cost of risk at 0.94%.

Strong capital generation, with the fully loaded ratio at 11.1%, as I just said, generating 9 basis points, which offset the negative market-related impact, thanks to our ability to generate recurring results and our efforts to allocate capital more efficiently, which is also a key strategic priority.

We are progressing very well on our transformation, we continue to deliver products to our customers, putting functionality in their hands.

Every quarter we are growing our digital sales, our mobile customers with exponential trends here, and the digital sales stand already at 22% of the total units sold year-to-date.

We have the great news that our mobile banking app in Spain was named #1 in the world by Forrester Research.

And finally, as highlights, we create value for the shareholder.

Our tangible book value per share is up EUR 0.09 year-to-date and if we add the EUR 0.21 of the dividends that we have paid, this year would be a EUR 0. 30 of additional tangible book value per share, which would be almost a 4% growth in the first 6 months.

I should point that the tangible book value did come down slightly in the quarter, because of very significant FX movements, in particular, the U.S. dollar depreciated quite significantly versus the euro and this affects the net book value of our Compass Holding.

The quarterly net profit of EUR 1,107 million, it's a drop of 1.4% versus last year at (inaudible) 1% growth in constant euros.

The drop, as you can see, is in net trading income, which in the second quarter, I remind you, included the VISA sale of EUR 225 million last year.

And this quarter we also had lower net trading income due to lower ALCO sales.

Other income was also lower this quarter, because last year we had the dividends from CNCB, which of course we sold, we don't have this year.

And the Telefonica dividend last year was also significantly higher than this year.

But on all other dimensions, it is a strong set of numbers, with NII growing 10%, fees almost 7%, costs less than 3%, and impairments are down almost 5%.

Similarly in the 6 months, we have had great results with a net attributable profit of EUR 2,306 million, which is a growth of almost 26% versus last year and 31% in constant euros.

Excellent trends also in core revenue growth.

Both NII and fees with cost evolution contained and with lower impairments, with cost growing 2.2%, and lower impairments.

The net interest income continues to grow at double digits, reaching EUR 4.5 billion in the second quarter, it's up 3.3% versus the first one.

Net fees and commissions grew at almost 7% -- 6.7% in the quarter versus last year, with good trends in all the markets.

Net trading income, as I said, was low with low ALCO sales and the lower global markets' contribution than in prior quarters, where you can see we had many extraordinary contributions in the prior quarters.

And the total revenues grew only 1.3% year-on-year because of this lower NTI and the lower dividends and they come down in the quarter because this quarter also includes the Single Resolution Fund contribution of EUR 100 million.

The core revenues, as mentioned, are strong, both in the quarter and in the half.

The operating expenses maintained a good trend of the first quarter.

They are growing 2.2% in the first half versus the first half of 2016, as well below the growth rate of revenues of 7.8% or 7.2% of growth rate of revenues excluding NTI.

Efficiency, thereby, improves in the year by 2.54 percentage points to 49.6% and it's clearly below the average of our peers.

Looking at this by country on the right of the page.

Spain has reduced cost by almost 5% -- 4.8%.

The U.S. has contained growth at 1.4%.

And the rates of growth of costs in the other countries; in the emerging markets are in line or below inflation.

Again, efficiency continues to be a key strategic priority for us, for the entire group and for all of the areas.

Operating income reached EUR 3.1 billion in the quarter, that's flat versus a year ago for the reasons that I already mentioned, but it's up a remarkable 13.9% in the first half.

And we have high growth rates in all markets, except in Spain, where the VISA contribution was very significant last year.

I would highlight the -- particularly good growth rates in the U.S., almost 20%, as well as in Turkey where the VISA contribution was also quite significant in the second quarter of last year.

Regarding risk indicators.

Again very good.

Loan loss provisions and impairments were EUR 1 billion, decreasing almost 10% versus 2016.

The cost of risk remains low -- flat below -- clearly below 100 basis points, and this is a result of our excellent risk profile.

We had a reduction in non-performing loans by EUR 800 million in the quarter and they're down EUR 2.4 billion since 12 months ago; reduction, which is mainly in Spain in the non-core real estate business.

And the ratio -- the NPL ratio 4.8% and coverage 71%, flat versus the first quarter.

So overall, solid asset quality.

Moving on to capital.

The fully loaded core equity Tier 1 ratio stands at 11.1%, in line with our target, 9 basis points increase in the quarter, and this is explained by our ability to generate earnings recurring results.

Net earnings, in fact, contributed 28 basis points.

Then we detracted the 11 basis points for the accrual of our dividend, and also by our focus on profitable growth.

The evolution here of the ratio is even more remarkable if we take into account that the ratio includes the negative impact of approximately 10 basis points coming from the Telefonica mark-to-market.

Now the share of Telefonica has dropped by about 14% in the quarter, and this has only been partially offset by the positives coming from mark-to-market of the fixed-income portfolios.

This quarter, the FX movements have not had a significant impact on the ratio.

In fact, it has been slightly positive.

And again, I would remind you of the high quality of our capital.

We remain as the bank with the highest risk-weighted asset density and the best fully loaded leverage ratio of our European peer group.

And thus we are well prepared to face future requirements.

In the quarter, we also issued EUR 500 million of AT1s, with a 5.875% coupon, which is the lowest achieved today by Spanish issuer.

Now in addition to the good results, we have also progressed well and are delivering on our transformation strategy, around 6 strategic priorities.

We had very good news a couple of weeks ago when it was announced that BBVA ranks #1 as the best mobile banking app in the world according to Forrester Research.

We're very proud of the team, quite a tremendous achievement.

Now beyond that, we continue to provide improved solutions to our customers in the various countries every quarter.

Some examples this quarter you have in the page.

I would highlight four of them.

Plan EstarSeguros, in Spain that's a new value proposition, which allows our customers to build their insurance plan with us, by grouping the payment of the insurance products in a single monthly bill with discounts that are based on the number of products with the bank.

Another example is BBVA Plan, financial goals in Mexico, a savings app that lets our customers really achieve specific short-term goals through innovative and automatic saving rules.

Open market for digital loans -- Digital loan for the open market in the U.S. is another example of our signature express product in the U.S. market.

Now we've taken it digital for the open market.

So it's an instant, fully digital end-to-end loan, which was already available for customers and now it's available as well for non-customers .

And the final example is the MIA, the Mobile Interactive Assistant, in Turkey a bot that performs banking transactions through hands-free voice experience, really a world-leading functionality, quite sophisticated understanding capability that can do almost 200 different functions.

We continue to grow our digital customer base, 22% versus a year ago, almost 20 million clients.

Mobile customers growing 42%, almost 15 million clients.

We achieved significant milestones, we've reached the tipping point.

So more than 50% of our customers in Chile and in Venezuela are digital customers.

Also in Turkey, but in Turkey, even better than that 50% of the customers are also active in mobile.

Digital sales continued to increase in all geographies to very significant levels, as we make more of our products available for DIY experience.

At the group level, 22% of all units sold in the first half were sold digitally.

And the number is similarly relevant in all markets, as you can see here in the chart and is growing fast in all of them.

Some impressive facts that illustrate really the exponential growth that we mentioned.

For example, in June, we had a record month in units sold digitally, almost 1 million.

In Spain, for example, in the first half of the year, we sold digitally in just 6 months as many units as we had sold in the entire 2016.

So I'll now turn it over to Jaime who is going to give you the overview of the business areas.

Jaime?

Thank you, Carlos and good afternoon everyone.

Let me start with Spain.

BBVA Research has once again revised upwards its growth estimates for the country.

Spain will now grow at 3.3% in 2017, thanks to positive employment data, more investment in equipment and higher exports.

Net attributable profits are growing by over 8% year-on-year despite lower NTIs, after recording in the second quarter 2016, EUR 138 million from the sale of VISA.

The main drivers behind this growth rates are continuous reduction in operating income -- in operating expenses, sorry, and significantly lower loan loss provisions.

Regarding core revenues, NII, evolution in the half, as we mentioned in previous quarters, has been negatively impacted by the lower contribution from the CIB business, mainly in the global markets area and from additional sales in the quarter in their securities portfolio.

Excluding CIB, NII in Spain remains flat in the half, in line with our expectations.

On the other hand, the net fees and commissions continued to recover, growing by 4.8% versus Q1.

If we include the insurance company results, this growth rate would have been even higher.

Loans are growing slightly in the quarter, 0.7%, thanks to consumer and SME loans that more than offset the decrease in mortgages that continued into the second quarter, although at a lower pace than before.

Year-to-date loans are almost flat in Spain.

We continued to improve our funding mix with DDAs growing over 25% year-on-year.

And we had another very good quarter in mutual funds, growing at 15.6% year-on-year.

Customer spreads remain flat.

The negative Euribor repricing has been offset by reduction in the cost of deposits.

NIMs are up in Spain by 2 basis points versus Q1.

Our balance sheet is well positioned to benefit from future rate increases.

NII in the next 12 months will go up by around 15%, in case of a parallel increase of a 100 basis points in the curve.

Costs are down by almost 5% as a result of the Catalunya Caixa integration and ongoing efficiency measures.

This number is consistent with our 2017 guidance of mid-single digit reductions.

Asset quality indicators continued to improve.

NPLs are down by 8% year-on-year, thanks to good levels of recoveries.

The NPL ratio decreases one more quarter, this time by 9 basis points to 5.7%, even if activity doesn't help much.

Cost of risk reaches 35 basis points year-to-date.

This level is below 40 basis, which is the year-end guidance, but as Q2 behaved very strongly, cost of risk was only 31 basis points.

We might have some upside here.

Now to real estate.

The real estate market dynamics in Spain continued to improve.

Household demand in the year through May went up by almost 15% and also realistic prices increased on average by 5.3% year-on-year.

This data as of March.

Leveraging on these market trends, we are delivering on our strategic goal to accelerate the run-off of this portfolio.

Year-to-date, we have reduced our net exposure by over 14%, $ 1.4 billion using all available sources; retail sales, wholesale transactions and transfer of real estate assets, (inaudible) change of shares in JVs.

In the second quarter, these wholesale transactions have generated positive results, allowing for a reduction of the negative contribution of the unit to the overall group results.

Moving on to the U.S. GDP growth expectations for the [samples] have also being revised upwards.

BBVA Research now expects GDP in the region to grow by 3.4% in 2017.

This upward revision is particularly relevant for Texas, where most of our business is located.

We're now expecting the state to grow by 4.3% this year.

As you already know, this quarter, DFAST & CCAR results have been released, and once again we received a positive response to our capital plans.

This proves not only our solid capital levels in the U.S., but also the strength of our capital and risk management processes.

Net attributable profits almost reached EUR 300 million in the half, a EUR62 million year-on-year increase in constant terms.

They were mainly driven by a net interest income growing at over 14% year on year, supported by a very good performance of customer spreads.

Fees are increasing by 8% year-on-year, thanks to strong CIB business, but also thanks to very good evolution of retail fees.

A significant decline in impairment and other provisions aas a result of improvement in asset quality indicators versus last year has also helped.

In terms of activity, we continue to focus on profitable growth.

Although total loans have remained practically stable in the quarter, the consumer segments grew again this quarter by over 1% quarter-on-quarter.

We expect loan growth to be positive in 2017.

The deposit mix continues to improve, having a positive impact on the cost of deposits, even despite higher rates.

Customer spreads keep on growing reaching levels around 3.8% and NIMs are also up in the U.S. by 13 basis points versus Q1.

Our balance sheet is asset- sensitive, a parallel increase of 100 basis points will have a positive impact of 7% in NII.

We expect the NII to grow double digits in 2017 and loan growth should return in the second half.

Costs are up in the half by 1.4%, showing positive jaws, as revenues are growing over 7%.

Asset quality indicators improved significantly versus last year, negatively impacted by increased provisions in the oil and gas and basic materials portfolio.

At 38 basis points, year-to-date cost of risk remains well below our 2017 guidance of 50 basis points.

Let's move now to Mexico.

BBVA Research maintains its GDP growth rate expectations at 1.6% for 2017, still below Mexico's long term potential growth rate, but above the estimates we had at the beginning of the year.

Bancomer shows once again very strong results in the quarter and net attributable profit of almost EUR 1.1 billion for the first 6 months of the year, representing a year-on-year increase of over 16%.

NII is growing in the high single digit range, driven by activity and a favorable evolution of customer spreads.

Fees are also growing fast at over 11% versus the first half of 2016, mainly due to larger volumes of credit card transactions and higher mutual funds and investment banking fees.

The evolution of fees and commissions have been better than initially expected, and we could see them growing this year in line with activity.

NTI is up by more than 25%, thanks to a good performance in Q1 of the global markets area, positively impacted by the revaluation of the inflation-linked bonds.

Together with a good evolution of the insurance business, this leads to a gross income above EUR 3.5 billion in the first 6 months at 10.5% year-on-year growth rate, in line with our year-end expectations.

Loans are growing around 9% year-on-year, slowing down slightly versus Q1.

Nevertheless, this growth rate remains in line with our expectations for the year.

The funding mix also improved in Mexico, if that is still possible.

DDAs now represent over 80% of total deposits.

Customer spreads continued to improve.

Rate hikes are translating into high yields, especially in the commercial segments, more than offsetting the increase in the deposit costs.

Outstanding expense control with cards growing at over 4%, well below inflation.

And although we do expect them to grow above these levels in 2017, we will maintain operating jaws positive.

Efficiency stands at 34.2%, 200 basis points better than a year ago.

Risk indicators remain solid with NPLs and coverage ratios stable in the quarter, and a year-to-date cost of risk of 335 basis points, below our year-end guidance of 350 basis points.

Moving on to Turkey.

GDP growth has significantly accelerated during the first quarter of the year to 5% year-on-year and the pace of economic activity remained robust into the second quarter.

This has allowed BBVA Research to revise its GDP growth forecast strongly upwards to 5% for 2017 from 3% before.

This environment has allowed guarantee to show impressive results with net attributable profits growing in the half by 39%, despite a significant decreasing in NTIs, as the second quarter of last year include EUR 86 million from the sale of VISA.

The main drivers behind this growth rates are a strong net interest income growing at over 21% year-on-year, mainly explained by volume growth, a successful customer spread management and higher contribution from CPI linkers.

Last May, the CPI reference rate to calculate the NII contribution from the linkers was increased from 7% to 9%.

In the first half of the year, these positive drivers have more than offset the increase in swap funding cost and higher deposit prices in (inaudible).

We also had another good quarter in fees, growing by 5.6% versus Q1.

Impairments have been lower in the quarter, performing better than initially expected.

Solid loan growth rates continued in the second quarter, focused on TL, the laminated loans, supported by the credit guarantee fund, while the U.S. dollar loans continue to go down year-on-year now by 8%.

During the second half of the year, we expect loan growth to slow down as guarantees share on the credit guarantee fund facility is going down.

We expect double digits growth rates in loans in the year, although below the 17% increase we saw in 2016.

In a higher rate environment, we have continued to grow our demand deposits and diversify our funding sources.

In the quarter, we've issued $ 150 million in covered bonds and $ 750 million Tier 2 at the lowest cost ever in the Turkish market.

In the quarter, we've seen some pressure on customer spreads as a consequence of the increase in the cost of deposits in local currency.

Total costs are growing by 11% year-on-year, very much in line with inflation and the cost-to-income ratio continues to improve to 38.4% in the half, slightly better than in the previous quarter.

Asset quality indicators keep on improving, behaving better than expected.

The NPL ratio decreases, coverage is up and cost of risk falls 2.8%.

Having said these, we maintain our 2017 cost of risk guidance at 110 basis points.

Now moving to South America.

We expect 2017 GDP growth below 2016 levels in most countries of our footprint, except for Argentina.

Despite this, net attributable in the quarter reached EUR 222 million, up 21% versus Q1.

We had a good evolution of core revenues in the first half.

NII growing at over 10%, above activity, thanks to wider spreads and fees are also growing above double digits.

Impairments though are up, especially in Colombia and Peru.

Regarding Argentina, this month BBVA Frances completed a capital increase of $ 400 million to take advantage of the expected growth opportunities in the country.

At almost 3x book value, we think this is a good transaction both for Banco Frances and BBVA shareholders.

In the region, loans are growing at 6.4%, in line with our mid single- digit guidance for the whole 2017.

Argentina remains a more dynamic country, followed by Chile and Colombia.

And we do expect the evolution of the loan book in Peru to be more favorable in the second half.

Customers funds are up by over 10% and also in the region improving our funding mix.

The customer spreads widens by 5 basis points versus Q1, mainly explained by a decrease in the cost of risk.

Expenses are growing slightly above inflation due to Argentina, but should smooth going forward, as inflation in the country goes down.

Cost-to-income improves quarter-on- quarter.

Excluding Argentina and Uruguay, all countries enjoy positive jaws.

Risk indicators are deteriorating in line with our expectations.

In any case, they remain at reasonable levels and compare well with peers in almost every country.

In 2017, we expect the area cost of risk to remain around the 140, 150 basis points range.

Now back to Carlos for some final remarks.

Thank you Jamie.

So as you've seen, we have excellent results in the first half with solid trends that we saw in the first quarter continuing, even stronger with growth in core revenues, control of costs, low cost of risk and solid capital generation.

We're progressing in our transformation.

We have the best mobile app -- best mobile banking app in the world.

We're growing our digital sales, which are already a relevant part of our business overall in all of the countries.

And we are creating value for our shareholders.

Thank you very much and I give the floor to Gloria for the Q&A.

[Operator Instruction]

(Operator Instructions) The first question comes from Jose Abad with Goldman Sachs.

Just a question from my side.

The first question is on Mexico.

Banco has one of the highest balances in consumer loans, I think customers account for around 25% of your loan book in the country.

And even though you have been slowing down, coming from levels of around 40% growth, I think the latest numbers I've seen in the Central Bank is that you're still growing your loan book at rates of around 20%, which is much higher than what competitors are doing.

So could you give us some color on your strategy here and whether you are also seeing some deterioration in credit quality?

Some of your competitors in the country are saying they are starting to see some deterioration in the credit card portfolios.

And the second question is on IFRS-9, whether you could give us some guidance regarding the impact on capital.

Regarding the first question, we are growing the consumer portfolio by 11.1% year-on-year as of June, so not the rates that Jose you've mentioned in the call.

I think in this portfolio, as in many others, I think we've been very clear during the last few quarters that we've been acting in fairly defensive fashion, and this is allowing us to maintain very good cost of risk numbers in Mexico, which will probably end the year slightly below where we were expecting at the beginning of the year.

So no significant impact whatsoever .

Yes, there's another question on IFRS 9. We are currently not providing an estimate.

This is still a work in progress.

We have yet to see what the final impact is.

In any case, you might have seen the EBA's latest publication of the results of the quantitative impact study, which shows some results, averages and ranges, might give you an idea.

We, in any case, are very comfortable that the effect would be a manageable effect for us.

But again, we're not providing estimates just yet, because it's a work in progress.

The next question comes from Francisco Riquel from Alantra.

In Spain, we have seen another let down in the NII, which is now down 4% year-on-year, so the flattish guidance that you admitted was already challenging, so I wanted [some] update on trends here, when do you see the floor and update the guidance.

And also differentiate it between the banking business volumes margins and the bond portfolio's contribution here.

Thank you Franco.

We believe that we've reached the floor in the second quarter of the year.

As I mentioned in my presentation, if it isn't for -- if we exclude the CIB business, the rest of the businesses will be more or less flat in the first half of the year versus last.

So behaving more or less as we were expecting.

What has been not expected is that the CIB contribution, especially on the global markets area has been much lower that what we had in the budget.

And that was shown in the first half of the -- in the first quarter of the year and also in the second.

This has also been helped by the fact that additional securities sales have been done in that area.

The contribution of the ALCO portfolio is pretty similar to what we had last year, if we net out the lower cost of wholesale funding, and that remains the case, is what we were expecting at the beginning of the year, and that's still the case as of today.

But it's true that flattish NII, taken all things together, it's going to be extremely challenging.

We will now be expecting more or less to repeat in the second half what we made in the first half of the year.

Okay, thank you.

So the second question, if I may.

If you believe that this shortfall in NII could be offset with lower fee income and cost of risk for the second half of year, if you can update us on these trends.

Fees are behaving very well, both on the CIB and the retail banking side.

This is a general trend, as you can see in the whole footprint.

We stick with our mid-single digits guidance for the year, although we might see some upside risk here.

Where it's more clear is the potential upside around cost of risk.

Second quarter numbers came in very good, 31 basis points in the quarter, it's much lower than what we were expecting in the year, so we might have additional upside on this line too.

The next question comes from Sofie Peterzens from JPMorgan.

My first question was around your real estate division and your strategy here.

Could you just remind us what -- how long we should expect losses in the real estate division and when they should disappear and also at what level and what kind of gains or losses you're seeing for the real estate that you're selling?

That was my first question.

And my second question is around [Trim].

Is there any update on Trim , is the regulator -- or in my understanding is the ECB is looking at Spanish mortgages, is there anything you can say here?

On the real estate, as we mentioned in prior quarters, we have a strategy of really accelerating divestiture of the portfolio.

So this is really a run- off portfolio that we expect to really run it off in about 3-years time.

So depending on the speed of that run-off, and we are really going faster than expected.

In the first half of the year we have reduced, as I mentioned already in the presentation, our portfolio in a faster way and there are additional wholesale transactions that are being carried out.

So depending on the speed that would go through the P&L faster whatever loss there is left.

So that's why we don't provide a specific guidance for 2017.

And on the [Trim] do want to comment Jamie?

Yes, the [Trim] exercise has already begun, but it hasn't finalized yet, so we don't have any thing to comment.

The next question comes from Alvaro Serrano from Morgan Stanley.

Yes.

The first one is on the Spain NII again, it's around the visibility you have.

You said that you expect Q2 to be the trough.

But does that mean you don't expect to sell further bonds?

And also in the loan growth, you've grown now 0.7% quarter-on-quarter.

In previous occasions, I think you were a bit more cautious.

Is the loan growth improving, do you think you can grow this year and is that contributing to that visibility?

And in Mexico, the second question is the costs of doing very well on my numbers.

They did very well in Q1.

The message was maybe that was too good to be sustainable, I seem to remember, but it looks like Q2 has been quite good as well and maybe a commentary on Mexican costs specifically?

Thank you.

Well, thank you.

Maybe I should take that Jamie on the NII, just to add on what you said and what Jamie has said.

I think the best way to think about this is that the NII for the remaining of the -- remainder of the year would be more or less to repeat the numbers that we have recorded in the first half.

Now the underlying commercial trends have been in line with what we expected.

And as Jamie said, the main reason why we are behind our guidance overall is because the CIB unit has underperformed in this respect of NII.

We did have better net trading income, but on the NII in particular, because of the sale of portfolios.

But really that's over in the sense that in the comparison with the first half there will be no further reductions of size of the portfolio.

And in terms of the volumes, we do expect flattish or slightly decreasing volumes of the year-end balances versus 2016.

And in Mexico, yes, again this is something that one has to work every quarter to ensure that costs, especially in countries which are emerging countries, don't continue to grow at high levels in the context of growing activity, and in Mexico we have so far been quite successful at doing that during the first half and we have many more plans in place in Mexico and elsewhere to try to continue to have this great evolution.

But we're not changing any guidance in this respect, we're just happy to see the results are bearing fruit.

And we expect to continue to work hard at this.

The next question comes from Carlos Peixoto from (inaudible).

My questions would be basically, first of all, if you could update us on your main business area sensitivity to interest rate movements.

And also the second question would be on whether there were any restructuring costs booked?

In the second quarter already there were some restructuring costs pending.

And what was the split of such restructuring costs between Spain and corporate center?

I will take that one quickly.

I think it is about EUR 50 million, about EUR 40 million and EUR 10 million restructuring costs.

Jamie?

Yes more or less along in those numbers.

And do you want to comment on the enterprises?

On the sensitivities, I already mentioned in the presentation in Spain and the U.S., Mexico and Latin America there are more less around the same levels as in the previous quarter, around 2% both.

And in Turkey, again is the only country that where we have negative sensitivity and for every 100 basis point increase NII goes down now by 3.7%.

The next question comes from Ignacio Ulargui from Deutsche Bank.

I just have one question on the Mexican NII.

Could you just update us on how do you see the competitive landscape in Mexico and what would be your guidance in terms of loan growth, or if you'd just stick to the high single digit 10% level that you have given before?

Thanks.

We stick with our guidance of high single digits growth, both in volumes and in NII.

And regarding the competitive dynamics, there is probably one bank that is growing very fast this first half of the year.

The rest I think are following more of a conservative approach, taking into account the situation in the country.

But that's the most I think that I could say.

In our case we maintain a very disciplined approach, as we've had in the last few quarters and we don't expect any major changes in our strategy.

Next question comes from Marta Romero from Bank of America Merrill Lynch.

Marta, please go ahead.

My first question is on Turkey.

Thank you for the update on your outlook for loan growth and cost of risk for 2017.

I'm aware you don't provide guidance for '18, but it would be great to hear your thoughts on the government-sponsored measures and whether you think that the loan growth rates that we are seeing today are sustainable, the asset quality trends are sustainable and the cost of risk and where do you see more normalized levels for Turkey?

And the second question is on loan growth in Spain.

Are there any seasonal elements this quarter that would go away in the following quarters, where do you expect to end your loan book in Spain for this year?

Thank you.

I think I did mentioned that we expect the loan book to be flattish or decrease slightly versus last year.

And in Turkey, it's a great question, we have seen very significant growth rates of activity, very much driven also by the support given by the government fund to the small business lending.

So that should be decreasing as we go forward.

And in terms of asset quality, Jamie did mention that our performance has been so far better than expected in a significant way, about 30 basis points, below our guidance of 110.

And we, going forward, are not counting on an increase of size of that cost of risk, but of course it all depends as well on how the activity continues to evolve.

Jamie, I don't know if you want to add.

Yes, we want to be conservative and that's why we're not increasing the -- reducing in this case the cost of risk guidance for Turkey.

And in the case of Spain, there is one large transaction in the quarter that has positively affected the numbers.

But those are seasonal impacts that they happen from time-to-time.

But it won't change significantly, the trend, though.

Next question comes from Adrian Cighi from RBC.

Two follow-ups please on Spain.

Can you please provide the amount of the (inaudible) that you have included in Q2 NII?

And also on Spain on costs, given the restructuring costs you've taken in H1, what is your expectation now on the development costs -- of costs from 2017 to 2018, do you still expect them to decline by a mid-single digits?

Thank you.

Yes.

The first question, the answer is EUR 36 million, exactly the same number as in the first quarter.

And regarding cost, we are expecting cost to go down by -- in the mid-single digits range.

So that hasn't changed.

That's for this year.

We're not just yet providing guidance for 2018, just to be clear.

Now the restructuring, which was questioned earlier, we don't expect significant restructuring charges for the second half of the year, this is also relevant.

The next question comes from Carlos Cobo from Societe Generale.

A quick question on volumes in Spain.

Earlier today we've heard other peers guiding to some potential growth in lending, even when they are also focused on mortgages in Spain, which is presumably the segment that grows the less.

So could you explain a little bit your strategy towards lending in Spain and why are you that conservative compared with other peers, which are already growing their loan books?

And secondly, just if you could help me to understand a little bit the cost of risk in Mexico and the resiliency that was seen after a significant increase in interest rates in the market, 400 basis points or more.

So what are the changes [these are doing to] our asset quality, as you implemented just to maintain the cost of risk so flattish?

And you expect any pickups for next year?

Thank you.

I think the main difference versus some of our competitors is the size of our mortgage portfolio.

This portfolio keeps deleveraging.

It's true that they are clearly slowing down and we could end the year maybe growing this portfolio.

But so far in the quarter that portfolio went down by EUR 1.2 billion.

That's lower than the EUR 1.5 billion.

That was down in the first quarter, but those are significant numbers and probably conditioned a little the numbers.

Our consumer book keeps growing and keeps growing very fast, almost 7% quarter-on-quarter.

We had very good numbers in general in the commercial segment in the quarter, although helped by that one- off transaction.

And that's what I think probably differentiates us more from our competitors.

I think in the rest, Spain is really focusing on profitable growth, but looking forward to increase its loan exposure.

Regarding cost of risk in Mexico, I think we've been saying this all along.

I think there are competitors and that's the question you always ask us.

When some competitors are starting to lend a lot to certain segments of the economy, you always ask us why we're not doing the same thing.

We always tell you exactly the same answer, which is that we are much more consistent that in general the rest of our peers in the country.

We have very good information.

I think we have very good credit risk modeling in the country.

So we are able to anticipate very well the behavior of our clientele.

That allows for a more recurrent loan growth rates, maybe not always the highest.

But if you take a medium-term perspective, I think what Bancomer always shows is a huge resiliency and very consistent numbers.

And this is the same answer that I'm able to give you today.

We did reduce and we shared this with you in the past, the consumer portfolio in (inaudible) is more affected by the restructuring that PEMEX was doing.

But that was pretty much the only measure that we had to take.

The rest is following our models that worked very well.

The next question comes from Britta Schmidt from Autonomous Research.

I have got two questions.

Coming back to the cost of risk outlook, you mentioned that there is some upside versus the guidance in Spain, but it's trending well below your targets.

Also in Mexico, U.S. and we just discussed Turkey.

What are the reasons for not changing the guidance in these areas?

Is there anything that you're aware off that's around the corner?

I know in Turkey, there might be some cases that are still unknown, but what about the Mexico and the U.S.?

And my second in the Spanish division, that has performed very well, especially in light of the SOM charges that were booked this quarter.

Is there anything unusual in there in this quarter?

And perhaps you can also comment a little bit on the outlook for the growth rate for the insurance business.

There is nothing in particular we're seeing in any of the countries that you mentioned.

I think it's general policy not to change guidance too much during the course of the year.

We are seeing very good numbers in the U.S., in Turkey and Spain.

And so we feel that there is some upside, but that does not necessarily lead to change the guidance.

The same thing happened last year.

And I think at the end, we did -- presented better numbers.

We're not seeing anything in particular that we think that we should share.

On to other income, there were two major effects as Carlos pointed out.

Spain's contribution to the Resolution Fund was EUR 98 million, slightly less than what we were expecting.

We were expecting a figure around EUR 117 million, EUR 120 million, which is what we paid last year.

But then the more recurrent and sustainable impact is a very good behavior that we are having in the insurance business.

Their fees are growing year-on-year by 8.5%, in the quarter-on-quarter by 11%, and this what is allowing Spain to show a very good showing in this line.

The next question comes from Benjie Creelan-Sandford from Jefferies.

Just one quick question left from my side on risk-weighted assets.

I mean obviously the risk weightings are still comparatively higher, but it does look like the risk weightings have gone down about a percentage point quarter- on- quarter.

So just wondered whether there is any particular driver of that in terms of the risk weighting?

No, nothing in particular.

RWAs went down in the quarter, mainly because of FX movements.

85% of the impact is explained by FX movements.

The only particular impact worth sharing is in Spain.

We did do a synthetic ABS on a SME portfolio in the quarter that has freed up some capital.

And in general, the risk profile in Spain is behaving a little bit better than what we were expecting.

But risk weightings haven't changed much in the last few quarters, they remain fairly stable.

The next question comes from Mario Ropero from Fidentiis.

Two questions.

The first one is, if you can give a little bit more color on the asset quality indicators for Colombia and Peru?

I don't know it's maybe just NPL ratios or if possible what are the -- the portfolio is driving the deterioration there?

What to expect going forward?

When can we expect the stabilization in this deterioration?

And also more color on this please.

And then the second question is, how should we think about the cost structure of the real estate unit in Spain.

I'm talking about mainly personal costs, if these costs should go down as the portfolio of assets goes down or not, because these personal cost will be eventually reallocated to other units as assets are sold?

Thank you.

Okay, on the first question, asset quality in Colombia and Peru.

These are 2 countries where BBVA Research has revised downwards in a fairly significant fashion its GDP growth estimates for the year, probably for different reasons in each country, Peru affected by the [El Nino] and lower basic material prices, and Colombia mainly affected by the lower price of oil.

This has had an impact on cost of risk in both countries, but in different portfolios.

In the case of Peru, it has more to do with the commercial book.

And in the case of Colombia has more to do with the consumer portfolios.

If you remember also in Colombia, we had a fairly significant one-off in the first quarter coming from one very large ticket.

And on the real estate question, absolutely the cost structure real state, I guess the best way to see it has 2 parts, one of which would be the costs associated with the assets themselves and other would be the structure of managing those assets.

And both will be coming down as the assets are sold.

One of them very directly, the ones linked to maintaining the assets, which are very significant costs.

And the cost of managing the assets from our side would be reducing that cost base as this non-core business really runs off completely, as I said in that time frame of 3 years.

We have also received two questions by e-mail . The first one is a question Carlos Garcia-Gonzalez from Kepler and it's regarding the NII sensitivity in Spain, the 15% in the first 12 months , how much could be after the full repricing?

That means below -- beyond the first 12 months.

I don't remember.

But some of you have actually done a very good analysis on NII sensitivity all across a number of our peers.

And you came with a conclusion that Spain, it's a good play to play the 12 to 24 months time frame.

Well, that is correct according to our internal metrics, although we haven't disclosed that sensitivity as of yet.

But it's still significant.

Still significant.

And there is another question from (inaudible).

She is asking are you planning to issue (inaudible).

She is asking, are you planning to issue [Enbrel-compliant] bonds .

Yes, we are.

We were waiting for the law to be approved in Spain, that has happened, and we will expect to issue senior non-preferred probably after the summer.

As you know, we've already made the necessary changes in our MTN program .

There are currently no further question from the line.

Okay, then I would really like to thank you all for connecting today in the evening and also for the flexibility on your side.

We are also sorry that the information was not readily available at the CNMV, as it should have been.

As Gloria indicated at the beginning of the call, we did experience some technical problems in trying to get the information over -- published, probably because it was a busy day of communications as she indicated.

In any event, we again appreciate your time and connecting to the call, your questions as well.

And wish you all a great rest of the summer.

And for those of you can take a break, I really hope that it's a fruitful time to rest and enjoy some time off.

And we'll see you in the fall, bye.

Bye.

Thank you.